Japan heading for biggest M&A spree in the U.S.

Japan is on track this year for its biggest acquisition spree in the US as advisers tell chief executives to pounce on deals while Chinese companies are hampered by trade war tensions.

The advice of bankers and lawyers to accelerate US-targeted deals has intensified over recent months in line with both the surge in trade war rhetoric and the perception that Chinese acquisition attempts will be stymied by the Committee on Foreign Investment in the US, the agency that vets foreign investment for national security threats.

The advice already appears to be having an effect. Japanese companies have spent ¥4.7tn ($42bn) via 177 deals in the US since January 1, putting them on track to beat a previous record of 178 deals set in the first nine months of 1990, according Tokyo-based research group Recof.

“I certainly tell my clients in many industries that they are essentially free from Chinese competition for US assets at the moment. Five years ago, in every auction, there would be a Chinese bidder that was willing to pay 30 per cent more than everyone else,” said Kenneth Lebrun, a mergers and acquisitions lawyer at Shearman & Sterling in Tokyo.

In the face of fewer strategic buyers from China, Yoshinobu Agu, Citigroup’s head of M&A division in Japan, said: “For Japanese companies, the strongest competitor could now be another Japanese buyer.”

The rise in US deals was highlighted by last week’s $7.2 deal by chipmaker Renesas Electronics for US rival Integrated Device Technology.

Earlier in the year, Asahi Kasei agreed to buy US-based Sage Automotive Interiors for $1.1bn including debt, and Recruit Holdings clinched a $1.2bn deal for US job hunting service Glassdoor.

One senior M&A banker in Tokyo, currently involved in a Japanese acquisition in the US, said: “Japanese companies do not need much to be convinced this is a sweet spot — they believe they are perceived as a ‘safe’ buyer by the US authorities.”

That belief, he added, has been enhanced by recent instances where Chinese companies found acquisitions blocked by Cfius. The most prominent was Cifius’s statement that Broadcom’s proposed $142bn takeover of Qualcomm could pose a national security threat.

But one Tokyo-based M&A lawyer warned that Japanese companies were likely to see the current window as narrow. “I am already hearing general counsels expressing concerns that Cfius could eventually start making life difficult for Japanese companies too,” he said.

Aggressive Chinese investors such as HNA, Dalian Wanda and Anbang Insurance have recently sold many of the overseas assets they had recently purchased amid Chinese government concerns over excessive leverage among large corporations.

“US companies are handicapping Chinese bids after Anbang and HNA. There has been a degree of unpredictability to Chinese buyers while Japanese companies are seen as solid and steady,” Mr Lebrun said.

Still, M&A experts warn that Japanese deals in the US also face the risk of being blocked by Chinese competition regulators, as was the case in the collapse of Qualcomm’s $44bn takeover of Netherlands-based NXP Semiconductors.

A test case would be whether the Renesas-IDT deal wins regulatory approval in both the US and China.

“IDT and Renesas each looked into the situation and both of us were convinced that the risk is small enough,” said Bunsei Kure, the chief executive of Renesas.

Gregory Waters, the chief executive of IDT, said: “Otherwise, neither of us will do it. In regards to the relative friendliness of Japanese cross-border transactions, we believe it is frankly true and distinctively more so than other countries.”